Taking cover in changing times

The pandemic has changed the way so many of us live, with jobs, travel and lifestyle all transformed during COVID. Now, as we start emerging on the other side, it may be a good idea to check whether these changes have impacted on your life insurance needs.

In some cases, you may require more cover and in others perhaps less. This is not just down to COVID. Changes to your insurance needs at any given time are a constant throughout your life.

Insurance through the ages

What you need as a single 20-something building your career is generally quite different from your requirements in your 40s when you may be juggling a young family and a mortgage. Then as you approach retirement and beyond, perhaps with your mortgage paid off, your needs change yet again.

On top of these life cycle changes, what may have seemed appropriate before COVID may no longer work. Perhaps you are working fewer hours and as a result have a lower income. Or perhaps you have opted to take early retirement.

Certainly, insurance companies have been mindful of people struggling to pay premiums during the pandemic and have generally honoured payouts on income protection cover if they occurred within that timeframe.

Whatever your circumstances, now is a good time to consider whether your current policies work for you.

What’s covered?

Life insurance is the umbrella term for four main types of cover – death, total and permanent disability (TPD), income protection and trauma.

Death cover is self-explanatory. It pays a lump sum to your nominated beneficiaries when you die. It is often packaged with TPD which covers things like living expenses, repayment of debt and medical costs if you are no longer able to work. If your TPD is held through your super fund, generally this will only be paid if you cannot work in “any” occupation; if it is held outside super, you may be covered if you can no longer work in your “own” occupation.

Income protection cover will pay part of your lost income for a pre-determined time if you get sick or are injured and need time off work. It is particularly useful if you are self-employed or a small business owner as you don’t have access to sick leave.

Trauma cover meanwhile provides a lump sum amount if you are diagnosed with a major illness or serious injury such as cancer, a heart condition, stroke or head injury. Such payments can be a big help with paying medical bills.

Check your super

Death and TPD insurance can often be purchased through your super fund. If, however, you took advantage of the early release of super allowed during COVID in 2020, it could be that you no longer have sufficient savings in your fund to cover the premium payments. Or, if you’ve been out of work due to COVID and not made any contributions to your super for 16 months, your account may have been deemed inactive under super law and closed.

It’s important to note that if you lost your job due to COVID, then any automatic cover in your super with your previous employer may have stopped. If you have a new employer, the cost may have increased. Also keep in mind that income protection insurance doesn’t cover you if you have lost your job due to a business closure or other COVID-related event.

Protect your mental health

One area that has received more attention during COVID is mental health. Not all insurance policies provide cover for mental health without exclusions or additional premiums. Nevertheless, according to the Financial Services Council, insurers paid out $1.47 billion in mental health claims in 2020.ⁱ

If your circumstances have changed, then it may be worth examining whether your life insurance cover still suits your needs and whether there are ways you can save money through lower premiums. For instance, you might reduce the amount you are insured for or remove some of the benefits.

i https://www.abc.net.au/news/2021-02-08/insurance-coverage-mental-health-after-covid-19/13122144